ITAD BIR Ruling No. 334-14

December 18, 2014 ITAD BIR RULING NO. 334-14 Article 10, Philippines-Singapore tax treaty Symrise Incorporated 18th Floor Taipan Place F. Ortigas Jr. Road, Ortigas Center Pasig City Attention: Yashmin Lumbao Finance and Administrative Manager Gentlemen : This refers to your tax treaty relief application filed on October 8, 2012, requesting confirmation that dividends received by Symrise Holding Pte., Ltd. ("Symrise Singapore") from Symrise Incorporated ("Symrise Phils") are subject to income tax of 15 percent preferential rate pursuant to the Convention between the Republic of the Philippines and Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Singapore tax treaty"). Facts It is represented that Symrise Singapore is a foreign corporation organized and existing under the laws of Singapore and a resident thereof based on its Articles of Association and on the Certificate of Residence issued by the Inland Revenue Authority of Singapore; that Symrise Singapore is situated at 226 Pandan Loop, #128412, Singapore; that Symrise Singapore is not registered as corporation in the Philippines per certification issued by the Securities and Exchange Commission dated October 2, 2012; and that, on the other hand, Symrise Phils is a corporation organized and existing under the laws of the Philippines with office address at 18F Taipan Place, F. Ortigas Jr. Road, Ortigas Center, Pasig City, Philippines. It is further represented that on August 10, 2012, the Board of Directors of Symrise Phils declare a cash dividends in favor of its stockholders of record dated August 31, 2012 amounting to Php72.00 per share payable on October 10, 2012; that since June 23, 2003 Symrise Phils confirms that Symrise Singapore shows the following stockholdings: cHCIDE Type of Number Par Value Mode of Date of Percentage Shares of Shares Acquisition Acquisition of Ownership Common 249,991 P100.00 Transfer June 23, 2003 99.99% Ruling In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code"), as amended, provides that dividends paid to Symrise Singapore, being a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "Section 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. (1) In General. Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraph 5(c): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the Code provides that such dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "Section 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. cITAaD xxx xxx xxx" In this particular case, the treaty involved is the Philippines-Singapore tax treaty, which, in its Article 10, provides: "Article 10 Dividends 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: a) 15 per cent of the gross amount of the dividends if the recipient is a company (including partnership) and during the part of the paying company's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 15 per cent of the outstanding shares of the voting stock of the paying company was owned by the recipient company; and b) in all other cases, 25 percent of the gross amount of the dividends. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. xxx xxx xxx Based on the above provisions, the Philippines may tax the dividends paid by a Philippine company to a company which is a resident of Singapore at a rate not exceeding 15 percent of the gross amount dividends if the latter holds directly at least 15 percent of the outstanding voting shares of the first-mentioned company, and such shareholdings should have existed during the part of the taxable year immediately preceding the day of payment of the dividends and during the whole of its prior taxable year. In all other cases, the 25 percent preferential tax rate shall apply. cHCSDa In view of the foregoing, since Symrise Singapore owns 99.99% outstanding shares of Symrise Phils, during the part of Symrise Phils (since June 23, 2003) taxable year immediately preceding the date of payment of the dividends and during the whole of its prior taxable year, this Office is of the opinion and so holds that the cash dividends paid by Symrise Phils to Symrise Singapore are subject to the preferential income tax rate of 15 percent pursuant to Article 10 (2) (a) of the Philippines-Singapore tax treaty. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue